Once a QLAC is annuitized (e.g., age 85) those monthly payments are of course taxable. At that same time, must the original $125,000 QLAC balance (or some other balance) be included in the amounts on which an annual RMD is calculated?
Yes, the QLAC distribution will more than satisfy the RMD for the QLAC. So are you saying that it’s necessary to include the QLAC balance along with all other accounts subject to the RMD in calculating the total RMD? Sorry if I’m being dense.
There is no need to figure a total RMD for all accounts. The non QLAC account RMDs are calculated as usual and will have a year end balance used in the RMD calculation. The QLAC IRA is a separate IRA contract that is ignored for RMD purpose until 85 or whenever it is annuitized, if sooner. When QLAC distributions start they should be in an annuitized format in which the distributions ARE the RMDs for the QLAC. All that means is that the distributions cannot be transferred to the other IRAs, since as RMDs they are not eligible for rollover. The RMDs do not result in additional distributions above what the QLAC would distribute without consideration of RMDs. However, since the QLAC grew in value for several years without the drag of RMDs, once distributions start at 85 they will be larger and calculated over fewer years of remaining life expectancy of the owner. Anyone who purchases a QLAC obviously benefits from no RMDs on the QLAC premium until it must be annuitized, but because of that free ride, the payouts at 85 will be larger due to the shorted life expectancy at 85.
Permalink Submitted by Alan - IRA critic on Tue, 2021-09-14 16:32
Yes, once QLAC annuity payments begin, the QLAC is treated as a new annuity purchase subject to the RMD Regs of 1.401(a)(9)-6 for annuitized payments. Most likely, the annual QLAC distribution will satisfy the RMD for the QLAC separately from the RMD for non QLAC balances, so the RMD would not generate any additional distribution beyond what the QLAC annuity payment would be.